5. Legal & Policy Issues Related to Energy Development in Texas

Approximately 95 percent of the land in Texas is privately-owned [32]. That means that most of the energy development in Texas – oil and gas, as well as wind and solar – occurs on private lands, and the terms and conditions under which the development is carried out are determined through negotiations between private landowners and energy companies. While the majority of energy development occurs on private lands, the General Land Office (GLO) leases approximately 13 million acres of state-owned land for oil and gas and renewables development and the University of Texas/Texas A&M Investment Management Company (UTIMCO) leases about 2.1 million acres on behalf of the Permanent University Fund. This section of the report discusses policies relevant to energy development on private and public lands in Texas.[1]

The land impacts of energy development, which are associated with land clearing and infrastructure development, including roads, pipelines, equipment, well pad construction, and the installation of solar panels or wind turbines, are experienced at the individual property owner-level and across the landscape. Effects of these types of development can include soil erosion and contamination, landscape fragmentation and habitat loss, light pollution, destruction of native vegetation, water use and contamination, and more. The spatial area cleared for pipelines, transmission lines, and other infrastructure often far exceeds that of the well pads and solar panels [33]. The extent and severity of land impacts resulting from development vary, depending on the intensity of the drilling operation or the size of the renewables project. 

In addition to environmental impacts, energy development may affect neighboring landowners by reducing the aesthetic value of their property or affect property values. Energy development has been known to impact nearby communities. In boom times of intense development, communities benefit from increased sales tax revenue, well-paying jobs, and increased investment into the community.  Unfortunately, there are negative impacts too. Increased traffic, dust, air and water pollution, light pollution, inflation, over-crowded schools, and noise were among the negative impacts of energy development identified by residents of West Texas communities when they were surveyed in 2017.[2]

With energy development occurring primarily on private land in Texas, this section discusses the legal and policy tools and resources available to private landowners to manage the terms of energy development on their property, helping to reduce the negative impacts that could occur. This section principally focuses on issues relevant to siting decisions, in order to reduce the impacts of development on the land. The various regulatory requirements that address water, air pollution, and waste, or specific best management practices for oil and gas, wind, and solar development are not described.[3] Where relevant, aspects of the GLO’s and UTIMCO’s leasing programs are discussed, noting that those agencies control the terms of energy development on their lands.

In Texas, there are few legal requirements that apply to the siting of oil and gas wells and utility-scale solar facilities and wind farms. The following is a brief description of the requirements that do exist, which is intended to provide context for the tools and resources that are presented in this section.

Oil and Gas  

The Railroad Commission of Texas (RRC) has jurisdiction over most aspects of oil and gas development. RRC regulations require that oil and gas operators file and maintain an approved Organization Report that serves as a license to operate in Texas, and the Organization Report must be renewed every year (See 16 TAC §3.1(a)- (h)). To be in good standing, an operator must provide financial security and keep accurate records of its operations, including the amount of oil and gas produced by each well and the amount of oil on hand at the end of the year. 

Prior to drilling a new oil or gas well, an operator must obtain a drilling permit from the RRC (16 TAC § 3.5). The permit application requires information about the location of the well and the depth of the producing formation, among other things. The operator must comply with the RRC’s well spacing requirements (16 TAC § 3.38). The statewide spacing rule provides that no well for oil, gas, or geothermal resource may be drilled closer than 1,200 feet to any well completed in or drilling to the same horizon on the same tract. In addition, no well may be drilled nearer than 467 feet to any property line, lease line, or subdivision line (16 TAC § 3.37).[4] The spacing rules are designed to prevent waste and protect the property interests of the mineral rights holders, not to address the land impacts of energy development that are the focus of this project.

Under state law, an oil and gas operation is subject to the exclusive jurisdiction of the state of Texas; municipalities and counties have only limited authority to enact measures that regulate oil and gas operations within their boundaries (TEX. NAT. RES. CODE §81.0523). Municipalities are allowed to regulate only aboveground activity related to an oil and gas operation, including measures that govern fire and emergency response, traffic, lights, or noise. They are also permitted to enact “reasonable setback requirements”( TEX. NAT. RES. CODE §81.0523) from schools, hospitals, subdivisions, and the like. Municipalities may not enact bans or limits on oil and gas operations that would effectively ban the operations. 

While the vast majority of oil and gas development occurs on private lands, a substantial amount takes place on Texas state lands (13 million acres) and lands managed by UTIMCO (2.1 million acres). The GLO manages energy development on state-owned lands, including submerged land along the coast, and university-owned lands are managed by UTIMCO. Revenues generated from GLO leases support public schools in Texas through the Permanent School Fund and revenues generated from the Permanent University Fund lands support the University of Texas and Texas A&M University systems. GLO and UTIMCO have developed standard leases that are used in their transactions with energy operators. 

Wind and Solar

Decisions about where to site new wind and solar facilities are driven by economics (for example, proximity to potential customers and transmission lines, and landowners’ interest in leasing their property to a developer) and the potential of the site to generate electricity (how sunny or windy it is, for example, and factors like the slope of the land). In Texas, there is no formal process for public or agency review of siting decisions and there are few regulatory hurdles for renewable energy developers who plan a new facility. Indeed, the lack of regulations is cited frequently as one of the principal reasons that Texas has substantially more wind generation currently (over 24,000 MW) than any other state [34]. 

Over the years, the Texas Legislature has considered a handful of bills that would have created some degree of regulatory review of renewable energy facilities. In 2007, the legislature considered a bill that would have required the Texas Commission on Environmental Quality (TCEQ) to certify new wind farms, but the bill did not make it out of subcommittee (H.B. 2794, 80th Leg. Reg. Sess. (Tex 2007)). In 2019, a bill was introduced in the Texas Legislature that would have given the Texas Parks and Wildlife Department (TPWD) authority to weigh in on wind farms proposed for development near the Devil’s River, but the bill did not pass.[5] The 2019 Legislature did pass HB 2845, which requires new wind leases to include specific provisions related to the removal and decommissioning of equipment after a facility ceases operations. The bill applies to wind leases signed after September 1, 2019. In 2017, the legislature passed the only bill that can be characterized as a siting bill: S.B. 277 denies wind farms located within 25 nautical miles of a military base the advantage of a tax abatement agreement with a county under the Texas Tax Code.  

Local governments have limited authority over siting renewable facilities in Texas. Municipalities have zoning authority pursuant to the Local Government Code, including the power to regulate the height of structures, the location, setback, and percentage of a lot that may be occupied (TX Local Government Code Sec. 211.003). Approximately 24 local ordinances have been enacted in Texas that affect mostly small wind facilities (less than 100 MW), focusing primarily on height restrictions and setback requirements. For facilities constructed outside of a municipal jurisdiction, there are no siting regulations. Counties have the authority to withhold property tax abatement benefits that the renewable energy facilities could apply for as a way to discourage development, but otherwise, counties have no power to prohibit a new facility or regulate the issues associated with siting. 

The few regulatory approvals required for new commercial scale wind farms and solar facilities are handled by the Electricity Reliability Council of Texas (ERCOT). ERCOT requires new electric generators of any type over 10 MW to complete a registration process before selling electricity through the Texas electricity grid [35]. ERCOT also requires that new facilities enter into an interconnection agreement with a transmission service provider prior to connecting to a transmission line. The ERCOT registration process and interconnection agreement requirements do not address siting issues.

Policy Tools to Minimize Damage to Land from Energy Development

With almost no regulatory tools available in Texas to influence decisions about siting energy developments, private landowners, GLO, and UTIMCO rely on contracts – surface use agreements, leases, and, sometimes, easements – to protect land resources. There are no regulatory mechanisms through which members of the public other than landowners have a say in the terms or location of energy development. There is no public notice requirement prior to development of an oil and gas field or renewable energy facility. 

Surface Use Agreements

A surface use agreement is a voluntary agreement between the surface owner and the mineral owner/lessee (usually an oil and gas company) that describes the terms under which the property will be developed, the company’s right to use water resources, roads, buildings, and other attributes of the surface, and the restoration that the company will carry out after the site is developed. Some states, including New Mexico and Oklahoma, require operators to enter into surface agreements with surface owners. In Texas, such agreements are not required by statute.

There are two distinct property rights with respect to land: the mineral estate and the surface estate. Mineral rights are severable, meaning they can be sold or conveyed to a third party separate from the surface rights. Once severed, the mineral interest holder has an implied easement to use the surface of the land for oil and gas exploration and development (Sun Oil v. Whitaker, 483 S.W. 2d 808 (Tex. 1982) (reh. Den’d)). The holder of the mineral rights may use as much of the surface of the land as “reasonably necessary” to access the minerals underneath, with few limits.[6] One scholar has described this right to use the surface as including “the legal privilege to use the surface in a way that interferes with the surface owner’s use of the land and that significantly damages the surface, without the legal obligation to make any compensation whatsoever.” [36]. 

Because the mineral rights are superior to, or dominant with respect to, the surface rights, in situations in which all of the mineral rights have been severed from the surface and conveyed to a third party the surface owner has very limited leverage to force the mineral owner to minimize damage to the surface during development, or to otherwise influence decisions about the development of the surface. Some oil and gas operators voluntarily negotiate with surface owners, however, in order to minimize disagreements and friction. In cases where the surface owner retains even a fraction of the mineral interest, the surface owner has leverage to negotiate.

A surface use agreement is an increasingly popular tool used by landowners to protect their property. The agreements can be used to specify activities associated with development, including (1) the location and size of infrastructure and roads; (2) remediation that will be required of the surface post-development; (3) the use of surface and groundwater resources; (4) specific development practices to minimize the disturbance of ranching and farming on the property; and (5) monetary damages that will be paid to the surface owner, under appropriate circumstances [37]. 

A surface use agreement can be an effective tool for reducing the land impacts of energy development. Examples of terms that could be used to protect the values that are the focus of this report include (1) requiring the operator to drill multiple horizontal wells from the same drilling pad, in order to reduce fragmentation caused by roads, pipelines and other infrastructure between wells; (2) requiring the operator to construct fencing or other visual screens where the drilling operation interferes with open space or views; (3) requiring the operator to reduce the size of the drilling pad after the well is completed or plugged as a dry hole. In addition, some surface use agreements require payment by the operator per acre of land impacted. This provision encourages operators to consolidate their drilling locations and minimize their spatial footprint [36].

Surface use agreements for oil and gas operations are often appended to the lease. The same type of provisions described for oil and gas could be included in the leases for wind and utility-scale solar facilities. Lease provisions are described below.

Leases for Renewable Energy Facilities

Establishing a wind farm or utility scale solar facility on private land requires a contractual agreement – usually a lease – with one or more private landowners, allowing the developer to develop the surface of the property. In cases where the mineral rights have been severed from the surface, the developer will want to secure the agreement of the mineral owner, as well, and possibly negotiate the location and scale of future oil and gas development up front. Otherwise, there is a risk that later the mineral owner could demand access to the oil and gas resources on the property, which could disrupt the wind or solar facility’s operations. Keeping in mind that the mineral estate is dominant to the surface estate.[7]

A lease for renewable energy development generally provides that the lessee (the energy developer) will have access to the surface as “necessary, helpful, appropriate or convenient” to construct and maintain the energy facility. In addition to the wind turbines and solar panels, this includes transmission and gathering lines, roads, storage facilities, pipelines, and maintenance yards, among other things. The lease generally has a lengthy term – for wind farms, the term can be 30-50 years or more – sometimes after a shorter initial term, during the which the developer assesses the viability of the site.

The landowner’s interests in the surface can be protected through provisions that ensure that ranching and agricultural activities can continue and recreational activities, including hunting, are allowed, usually under specific conditions (the lease would specify details such as access to the property, location of the turbines or solar panels, protection of existing structures, and the like). For surface owners who also own the minerals under their land, the lease should include provisions that would ensure appropriate access to the oil and gas on the property. The lease should also include a provision to compensate the landowner if damages occur during the construction or operation phase of the facility.

During the negotiating process with the energy company, landowners have considerable leverage to negotiate for provisions to protect the important values on the property, such as scenic views, dark skies, and wildlife habitat. It is important that the landowner have competent legal representation during the negotiation phase to protect her interests.

University Lands’ Lease for Oil and Gas Development

University Lands uses a standard lease with operators who drill on lands managed by UTIMCO. The lease contains a number of provisions that are designed to protect the surface of the land and minimize the environmental harm associated with drilling, including:

1. A requirement that operators take measures to reduce waste generated;

2. Avoid flaring and venting and other sources of air emissions,

3. Undertake adequate plugging of abandoned wells;

4. Maintain at least a 300-foot setback from any residence, barn, or other facility; and

5. Restore the surface, as close as possible to the condition it was in before any operations or activities were commenced under the lease [39].

Under the lease, UTIMCO retains control over access to the surface, rights-of-way, access to water, and other resources. 

The lease also contains a stringent surface damage provision. It reads:

SURFACE DAMAGES. Lessee must repair, restore, and pay for all damages resulting from Lessee’s, its representatives’, agents’, subcontractors’, designees’, assigns’, and successors’ activities under this Lease, including without limitation damages to real and personal property, water wells, improvements, livestock, and crops on the Leased Premises or adjacent lands owned or controlled by Lessor, regardless of the cause of such damage, pursuant to the then-current Rate and Damage Schedule. Lessee acknowledges that the cost of such repairs or damages contemplated by this Section or any other provision of this Lease requiring restoration or repair may exceed the fair market value of the property damaged, and the cost of such damages and repairs will not be limited by fair market value. By executing this Lease, Lessee agrees to promptly complete all required repairs, and no release, forfeiture, or termination of this Lease will relieve Lessee from its obligations under this Lease or pursuant to applicable law, including the obligation to plug all wells and clean and restore the Leased Premises (16 TAC § 3.38).

The University Lands lease is a model that should be used as much as possible by private landowners across Texas when negotiating with oil and gas companies.

University Lands has also developed standard lease agreements for use with wind and solar developers. There are currently four solar leases and three wind leases on University Lands. Like the oil and gas lease, the wind and solar leases protect the rights of the surface owner (UL) by ensuring that the developer must (1) obtain permission from University Lands prior to constructing roads and other infrastructure; (2) remove all equipment when the facility is decommissioned; and (3) restore the surface to its pre-development condition.[8] There are also provisions to ensure that other uses of the property may continue after development, including ranching, hunting, and oil and gas development. Like the University Lands lease for oil and gas, the wind and solar leases are excellent models for private landowners to use when negotiating with a renewable energy company.

General Land Office Lease for Development of State-Owned Oil and Gas

Like University Lands, the GLO uses a standard lease form when leasing mineral rights to an oil and gas company.[9] Though it is not as detailed and explicit as the University Lands standard lease, it also includes provisions to ensure that the surface owner is compensated when the operator damages the surface. The lease contains provisions related to the protection of the land, but does not reserve as much authority to the surface owner to approve development decisions as the UL lease does. The GLO also negotiates leases for utility scale solar facilities and wind farms on its land.

Conservation Easements

Another important tool for protecting the values associated with land – for example, scenic vistas, wildlife habitat, and water recharge – is the conservation easement. A conservation easement is a voluntary, binding legal agreement that restricts the otherwise permissible uses of the land in order to protect the land’s conservation values. Usually, a conservation easement is a permanent restriction; that is, the easement becomes incorporated into the title of the land and binds both current and future landowners to its terms. Occasionally, temporary, or “term,” easements are negotiated between landowners and government agencies or nongovernmental organizations, to provide shorter-term protection of the property.

Easements can take myriad forms and be crafted to address the unique circumstances of individual landowners. For example, some conservation easements provide that certain existing land uses, such as grazing and hunting, can continue on the property, but prohibit the construction of structures greater than a specified size. Others might cover only a portion of a landowner’s property but have no effect on the remainder. 

Easements provide tax benefits for the landowner. If the easement is donated to a non-governmental organization or a government agency, the landowner receives a federal tax deduction up to the landowner’s adjusted gross income. Once the easement is in place, the appraised value of the property is usually lower than the fair market value prior to the easement, so the property tax rate will be less. 

Easements are an effective tool for managing the surface uses of property, including protecting scenic vistas, because they govern the uses that will be allowed on the surface. It is important to note that a conservation easement that covers the surface does not necessarily prevent the development of the mineral resource by the mineral rights owner. The mineral rights owner has the right to use the surface to develop the mineral resource, even if there is a conservation easement in place.

Conclusion

There are few legal tools available in Texas to control energy sprawl. Oil and gas leases are negotiated by individual land (or mineral) owners and energy companies. There is no requirement that the public be notified prior to leasing and no requirement that the companies notify other landowners about the terms they have offered to their neighbors. It is up to each individual landowner to negotiate the most favorable terms possible, to minimize the potential for damage to the surface and protect the most important resources on the property. The model lease developed by University Lands is a useful template for individual landowners to use as they negotiate with energy companies themselves.

Renewable energy facilities require no state permits. Regulation is left to local governments and only a handful of cities in Texas have enacted ordinances that address setbacks and height restrictions. There are no applicable requirements for siting facilities outside city limits. Like for oil and gas, it is up to individual landowners to negotiate the most favorable terms possible to minimize the negative impacts on their property associated with development.

Texas has no state law that requires operators to negotiate surface use agreements prior to drilling like New Mexico, Oklahoma, and other states. It also has no surface damage act to ensure that surface owners are compensated when energy development damages the surface. In fact, Texas is the only major oil producing state without a surface damage act. To date, efforts to introduce a surface damage act in the legislature have failed.

To control energy sprawl on the landscape, it is important for property owners, interested community members, and energy companies to communicate as openly as possible and discuss options for minimizing negative impacts of development. The Respect Big Bend spatial tool provides extensive data about the location of key values that community members in the Big Bend Region identified as most important. The tool can be used to assess siting options that would avoid or minimize impacts on those places and ensure that individual properties are protected as much as possible.

[1] There is a very small amount of federal public land in Texas leased for energy development. This chapter does not discuss leasing practices on federal lands.

[2] The results of the survey are discussed in detail in Chapter 2 and further in Supplement section 1.

[3] Examples of Best Management Practices that have been developed by the energy sector are included in Section 4.

[4] The RRC may grant exceptions to these requirements if necessary to protect waste or private property interests.

[5] HB 4554 was intended to address the concerns of a number of private property owners near the Devil’s River who were concerned about the impact of wind development on wildlife and scenic vistas. The bill received a hearing, but not a vote.

[6] The mineral owner has the right to use as much of the surface as is “reasonably necessary” to access the minerals. Courts have been reticent to find that mineral owners exceeded that standard in particular cases. “Reasonably necessary” has been held to include a variety of activities related to oil and gas development, including drilling wells, building roads, pipelines, storage and processing facilities, and the use of water. 

[7] This chapter does not describe the specific measures that can be adopted to minimize conflict between mineral rights holders and renewable energy developers. For a detailed discussion of that topic, see E. Smith, J. Lederle, W. Berg, “Everything Under the Sun: A Guide to Siting Solar in the Lone Star State,” TEX Oil Gas and Energy Law Journal, Vo. 12 (2017) [38].

[8] See, e.g., University Lands Wind Lease (2017) available at http://www.utlands.utsystem.edu/Content/Documents/Operations/Wind_Lease.pdf.

[9] The lease is available at https://www.glo.texas.gov/energy-business/oil-gas/mineral-leasing/leasing/forms/Form_Relinquishment_Act_Lease.pdf.